Michigan Cracks Down on Web Cigarette Buyers
DETROIT -- The Detroit News reports that thousands of Michigan smokers are getting burned by their attempts to avoid the state's $2-per-pack cigarette tax by ordering their smokes online.
The state Treasury Department has sent letters to more than 2,800 residents ordering them to pay an average of $3,200, spokesman Terry Stanton said. The crackdown, which started in February with about 500 letters, already has netted $2.5 million.
The state eventually could target thousands more Michigan smokers -- and taxes collected could grow to tens of millions of dollars -- as more vendors respond to subpoenas demanding information about online cigarette purchases made since 2001.
Two Web sites, eSmokes.com and DirtCheapCig.com, gave up the names of 11,579 Michigan residents who bought 581,808 cartons, costing the state $8.5 million in taxes. A third site has started identifying customers, and the state subpoenaed United Parcel Service to get information about shipments from some of the 10 companies that haven't responded.
The state, which is facing a revenue crunch due to the slumping economy, is prosecuting dozens of residents who bought more than 300 cartons online, according to a report on the Treasury Department Web site. Rewards of up to $5,000 are being offered to "concerned taxpayers" who tell authorities about tax-free cigarette purchases.
Michigan is one of at least 10 states that ban buying cigarettes in the mail or online unless the customer is a licensed distributor or the seller collects Michigan sales and cigarettes taxes. Violators can be punished by up to five years in prison.
For now, the state is more focused on informing people that such purchases are illegal and persuading them to stop rather than pursuing criminal charges, Stanton said. Officials are willing to set up a payment plan for residents who can't pay their entire bill right away.
According to the report, some online buyers have turned themselves in and paid up since the crackdown started, and Stanton urges others to do the same to avoid interest and penalties.
"We want to make sure people realize there's no such thing as a tax-free cigarette," Stanton said, "so they don't fall victim to these online vendors."
Already some tobacco retailers, many of which have been hurting for customers since Michigan increased its cigarette tax 75 cents per pack last year, are seeing business increase as a result of the state's crackdown.
"We've been seeing faces that we haven't seen before," Luke Samona, manager of Smoker's Outlet in Roseville, told the News. "And regular customers that haven't been here in a while."
Steve Barger, who owns four Shell gas stations in Washtenaw and Monroe counties, said the disparity between cigarette taxes in neighboring states is more troublesome than online sales. Barger was frustrated to see a recent ad in Toledo's newspaper showing Michigan residents how much they can save on cigarettes at a store just south of the state line.
"They're coming after our residents, and I don't blame them," he said. "I can't understand why our legislators have created such an unlevel playing field."
Mark Griffin, president of the Michigan Association of Convenience Stores, a group composed mostly of independent gas stations, said he would appreciate the state's crackdown on cigarette tax scofflaws if more smokers are persuaded to follow the law and buy from stores here. But he doesn't think that will happen.
"It's the tax rate that's the problem here. We can try to say we'll do more enforcement, but retailers and customers will find ways around it," Griffin said. "You turn people into common criminals in their desire to use an otherwise legal product."
Michigan, which has the nation's third-highest state cigarette tax, is not alone in its efforts to collect the unpaid taxes. Ohio, Illinois, Pennsylvania and Alaska have billed smokers in recent months, and New York City, which charges smokers an extra $3 per pack, has begun a similar crackdown.
They're being helped by the fact that buying cigarettes online has become much more difficult. Major credit-card companies began declining transactions from Web-based tobacco vendors earlier this year, and some delivery services, including FedEx, have stopped accepting tobacco shipments to homes.
The state Treasury Department has sent letters to more than 2,800 residents ordering them to pay an average of $3,200, spokesman Terry Stanton said. The crackdown, which started in February with about 500 letters, already has netted $2.5 million.
The state eventually could target thousands more Michigan smokers -- and taxes collected could grow to tens of millions of dollars -- as more vendors respond to subpoenas demanding information about online cigarette purchases made since 2001.
Two Web sites, eSmokes.com and DirtCheapCig.com, gave up the names of 11,579 Michigan residents who bought 581,808 cartons, costing the state $8.5 million in taxes. A third site has started identifying customers, and the state subpoenaed United Parcel Service to get information about shipments from some of the 10 companies that haven't responded.
The state, which is facing a revenue crunch due to the slumping economy, is prosecuting dozens of residents who bought more than 300 cartons online, according to a report on the Treasury Department Web site. Rewards of up to $5,000 are being offered to "concerned taxpayers" who tell authorities about tax-free cigarette purchases.
Michigan is one of at least 10 states that ban buying cigarettes in the mail or online unless the customer is a licensed distributor or the seller collects Michigan sales and cigarettes taxes. Violators can be punished by up to five years in prison.
For now, the state is more focused on informing people that such purchases are illegal and persuading them to stop rather than pursuing criminal charges, Stanton said. Officials are willing to set up a payment plan for residents who can't pay their entire bill right away.
According to the report, some online buyers have turned themselves in and paid up since the crackdown started, and Stanton urges others to do the same to avoid interest and penalties.
"We want to make sure people realize there's no such thing as a tax-free cigarette," Stanton said, "so they don't fall victim to these online vendors."
Already some tobacco retailers, many of which have been hurting for customers since Michigan increased its cigarette tax 75 cents per pack last year, are seeing business increase as a result of the state's crackdown.
"We've been seeing faces that we haven't seen before," Luke Samona, manager of Smoker's Outlet in Roseville, told the News. "And regular customers that haven't been here in a while."
Steve Barger, who owns four Shell gas stations in Washtenaw and Monroe counties, said the disparity between cigarette taxes in neighboring states is more troublesome than online sales. Barger was frustrated to see a recent ad in Toledo's newspaper showing Michigan residents how much they can save on cigarettes at a store just south of the state line.
"They're coming after our residents, and I don't blame them," he said. "I can't understand why our legislators have created such an unlevel playing field."
Mark Griffin, president of the Michigan Association of Convenience Stores, a group composed mostly of independent gas stations, said he would appreciate the state's crackdown on cigarette tax scofflaws if more smokers are persuaded to follow the law and buy from stores here. But he doesn't think that will happen.
"It's the tax rate that's the problem here. We can try to say we'll do more enforcement, but retailers and customers will find ways around it," Griffin said. "You turn people into common criminals in their desire to use an otherwise legal product."
Michigan, which has the nation's third-highest state cigarette tax, is not alone in its efforts to collect the unpaid taxes. Ohio, Illinois, Pennsylvania and Alaska have billed smokers in recent months, and New York City, which charges smokers an extra $3 per pack, has begun a similar crackdown.
They're being helped by the fact that buying cigarettes online has become much more difficult. Major credit-card companies began declining transactions from Web-based tobacco vendors earlier this year, and some delivery services, including FedEx, have stopped accepting tobacco shipments to homes.